Effective electronic trading in financial markets relies on appropriate protocols to optimize the way parties engage and transact. Usually trading occurs by directly negotiating the terms, such as the instrument, the price and the size. Where an instrument is relatively illiquid—i.e., relatively thinly-traded—currently-used protocols fail to adequately address the issue of stimulating liquidity.
Request for Quote (“RFQ”) is a protocol that allows brokers and/or traders to engage one another absent substantial liquidity, but RFQ has other limitations. For example, RFQ exhibits a rigid market structure and typically obtains a low-hit ratio.
It would be desirable to offer a hybrid protocol for acting together with known protocols already in use, such as Central Limit Order Book (“CLOB”), Workups/Join the Trade (“JTT”), Matching and Open Market (all trading protocols manufactured by GFI Group, Inc. of New York, N.Y.) order to stimulate liquidity.
It would be further desirable to leverage existing protocols and embed a formal element of commitment into such existing protocols in order to form a hybrid protocol.